UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
---------------------- -----------------------
Commission file number: 0-23494
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BRIGHTPOINT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1778566
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
600 East 96th Street, Suite 575, Indianapolis, Indiana 46240
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(Address of principal executive offices) (Zip Code)
(317) 805-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at August 7, 2002: 8,001,646 shares
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2002 and 2001.............................3
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001...........................................4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001.......................................5
Notes to Consolidated Financial Statements...........................................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................21
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk............................................................35
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings...................................................................36
ITEM 4
Submission of Matters to a Vote of Security Holders.................................37
ITEM 6
Exhibits............................................................................38
Reports on Form 8-K.................................................................38
Signatures..........................................................................39
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
------------- ------------ ------------- ------------
Revenue $ 339,439 $ 355,132 $ 677,431 $ 701,429
Cost of revenue 325,482 344,942 646,431 666,719
--------- --------- --------- ---------
Gross profit 13,957 10,190 31,000 34,710
Selling, general and administrative expenses 22,866 16,010 44,264 35,389
--------- --------- --------- ---------
Operating loss from continuing operations (8,909) (5,820) (13,264) (679)
Interest expense 1,659 2,051 4,141 4,114
Other (income) expenses 480 (163) 1,278 (87)
--------- --------- --------- ---------
Loss from continuing operations before income taxes and
minority interest (11,048) (7,708) (18,683) (4,706)
Income taxes (2,023) (2,427) (3,644) (1,309)
--------- --------- --------- ---------
Loss from continuing operations before minority interest (9,025) (5,281) (15,039) (3,397)
Minority interest (100) (28) (67) 20
--------- --------- --------- ---------
Loss from continuing operations (8,925) (5,253) (14,972) (3,417)
Discontinued operations:
Loss from discontinued operations (4,739) (1,613) (6,272) (1,048)
Gain on disposal of discontinued operations 927 -- 1,303 --
--------- --------- --------- ---------
Total discontinued operations (3,812) (1,613) (4,969) (1,048)
Total loss before cumulative effect and extraordinary gain (12,737) (6,866) (19,941) (4,465)
Cumulative effect of a change in accounting principle,
net of tax -- -- (40,748) --
Extraordinary gain on debt extinguishment, net of tax 7,513 -- 7,513 4,623
--------- --------- --------- ---------
Net income (loss) $ (5,224) $ (6,866) $ (53,176) $ 158
========= ========= ========= =========
Basic and diluted per share:
Loss from continuing operations $ (1.11) $ (0.66) $ (1.88) $ (0.43)
Discontinued operations (0.48) (0.20) (0.62) (0.13)
Cumulative effect of a change in accounting principle, net
of tax -- -- (5.10) --
Extraordinary gain on debt extinguishment, net of tax 0.94 -- 0.94 0.58
--------- --------- --------- ---------
Net income (loss) $ (0.65) $ (0.86) $ (6.66) $ 0.02
========= ========= ========= =========
Weighted average common shares outstanding:
Basic and diluted 7,990 7,972 7,986 7,970
========= ========= ========= =========
See accompanying notes.
3
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
June 30, 2002 December 31, 2001
--------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 64,274 $ 58,295
Pledged cash 16,803 16,657
Accounts receivable (less allowance for doubtful
accounts of $6,540 in 2002 and $6,272 in 2001) 136,276 181,755
Inventories 77,137 137,549
Contract financing receivable 28,709 60,404
Other current assets 34,518 33,115
--------- ---------
Total current assets 357,717 487,775
Property and equipment 43,019 45,047
Goodwill and other intangibles 13,996 61,258
Other assets 23,858 15,340
--------- ---------
Total assets $ 438,590 $ 609,420
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 134,926 $ 194,776
Accrued expenses 65,052 52,743
Unfunded portion of contract financing receivable 27,534 45,499
Lines of credit, short-term 7,144 10,323
Convertible notes, short-term 105,830 --
--------- ---------
Total current liabilities 340,486 303,341
--------- ---------
Long-term liabilities:
Line of credit -- 24,419
Convertible notes -- 131,647
--------- ---------
Total long-term liabilities -- 156,066
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $0.01 par value: 100,000 shares
authorized; 7,997 and 7,980 issued and
outstanding in 2002 and 2001, respectively 560 559
Additional paid-in capital 214,061 213,973
Retained deficit (100,221) (47,045)
Accumulated other comprehensive loss (16,296) (17,474)
--------- ---------
Total stockholders' equity 98,104 150,013
--------- ---------
Total liabilities and stockholders' equity $ 438,590 $ 609,420
========= =========
See accompanying notes.
4
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30
2002 2001
------------- ------------
OPERATING ACTIVITIES
Net income (loss) $(53,176) $ 158
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,416 8,445
Amortization of debt discount 2,571 2,710
Pledged cash requirements (146) (6,185)
Cumulative effect of a change in accounting principle, net of tax 40,748 --
Extraordinary gain on debt extinguishment, net of tax (7,513) (4,623)
Discontinued operations 4,969 1,048
Minority interest and deferred taxes (67) (152)
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts receivable 50,247 13,328
Inventories 61,015 60,013
Other operating assets (4,426) 5,923
Accounts payable and accrued expenses (60,281) (46,651)
-------- --------
Net cash provided by operating activities 40,357 34,014
INVESTING ACTIVITIES
Capital expenditures (6,486) (16,139)
Cash effect of divestiture (5,941) --
Purchase acquisitions, net of cash acquired (282) --
Decrease (increase) in funded contract financing receivables 14,195 (7,937)
Decrease (increase) in other assets 379 (596)
-------- --------
Net cash provided (used) by investing activities 1,865 (24,672)
FINANCING ACTIVITIES
Net payments on revolving credit facilities (21,243) (41,941)
Repurchase of convertible notes (15,203) (10,095)
Proceeds from common stock issuances under employee stock
option and purchase plans 89 137
-------- --------
Net cash used by financing activities (36,357) (51,899)
Effect of exchange rate changes on cash and cash
equivalents 114 (811)
-------- --------
Net increase (decrease) in cash and cash equivalents 5,979 (43,368)
Cash and cash equivalents at beginning of period 58,295 79,718
-------- --------
Cash and cash equivalents at end of period $ 64,274 $ 36,350
======== ========
See accompanying notes.
5
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
1. Basis of Presentation
GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. The preparation of financial statements requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results are likely to differ
from those estimates, but management does not believe such differences will
materially affect the Company's financial position or results of operations. In
the opinion of the Company, all adjustments considered necessary to present
fairly the consolidated financial statements have been included. On June 26,
2002, the Company's shareholders approved a 1-for-7 reverse split of its common
stock. Per share amounts in this report for all periods presented have been
adjusted to reflect this reverse stock split which was effective on June 27,
2002.
The consolidated financial statements include the accounts of the Company and
its majority-owned or controlled subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. Certain amounts in the
2001 consolidated financial statements have been reclassified to conform to the
2002 presentation.
The consolidated balance sheet at December 31, 2001 has been derived from the
audited consolidated financial statements at that date, but does not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The unaudited
consolidated statements of operations for the three and six months ended June
30, 2002 and the unaudited consolidated statement of cash flows for the six
months ended June 30, 2002 are not necessarily indicative of the operating
results or cash flows that may be expected for the entire year.
The Company has not materially changed its significant accounting policies from
those disclosed in its Form 10-K for the year ended December 31, 2001, except
for, as discussed below, the implementation of Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets which was implemented in the first quarter of 2002 and Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
which was applied retroactively to the first quarter of 2002.
For further information, reference is made to the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
1. Basis of Presentation (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On October 3, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 144
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and also supersedes the
accounting and reporting provisions of APB Opinion Number 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions ("APB No. 30"), for segments of a business to be disposed of. Among
its many provisions, SFAS No. 144 retains the fundamental requirements of both
previous standards, however, it resolves significant implementation issues
related to FASB Statement No. 121 and broadens the separate presentation of
discontinued operations in the income statement required by APB No. 30 to
include a component of an entity (rather than a segment of a business). The
provisions of SFAS No. 144 became effective for financial statements issued for
fiscal years beginning after December 15, 2001 with early application
encouraged. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of
SFAS No. 144 did not have a material effect on the Company's results of
operations, financial position or cash flows. See Note 2 to the Consolidated
Financial Statements for further discussion.
On June 29, 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 142
addresses accounting and reporting of acquired goodwill and other intangible
assets. The Company completed its impairment testing under the requirements of
SFAS No. 142 during the second quarter of 2002 and the results were applied
retroactively to January 1, 2002. See Note 3 to the Consolidated Financial
Statements for further discussion.
In April of 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections ("SFAS No. 145"). SFAS No. 145
rescinds both FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt ("FASB Statement No. 4"), and an amendment to that
Statement, FASB Statement No.64, Extinguishments of Debt Made to Satisfy Sinking
Fund Requirements ("FASB Statement No. 64"). FASB Statement No. 4 required that
all gains and losses from the extinguishment of debt be aggregated and, if
material, be classified as an extraordinary item, net of the related income tax
effect. Upon the adoption of SFAS No. 145, all gains and losses on the
extinguishment of debt for periods presented in the financial statements will be
classified as extraordinary items only if they meet the criteria in APB No. 30.
The provisions of SFAS No. 145 related to the rescission of FASB Statement No. 4
and FASB Statement No. 64 shall be applied for fiscal years beginning after May
15, 2002. Upon adoption in January of 2003, the Company expects it will be
required to classify any gains or losses on debt extinguishment, if material, as
a separate line item before Income from Continuing Operations for all periods
presented. The provisions of SFAS No. 145 related to the rescission of FASB
Statement No. 44, the amendment of FASB Statement No. 13 and Technical
Corrections became effective as of May 15, 2002 and did not have a material
impact on the Company.
7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
1. Basis of Presentation (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June of 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
No. 146"). SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") Issue No,
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 generally requires companies to recognize costs
associated with exit activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan and is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The Company is
currently evaluating the effects, if any, that this standard will have on its
results of operations and financial position.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is based on the weighted average number of
common shares outstanding during each period, and diluted net income (loss) per
share is based on the weighted average number of common shares and dilutive
common share equivalents outstanding during each period. The Company's common
share equivalents consist of stock options and the Convertible Notes described
in Note 7 to the Consolidated Financial Statements. For all periods presented in
this report, basic and diluted income (loss) per share are the same due to the
Company's losses from continuing operations.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments and gains or
losses resulting from currency translations of foreign investments. During the
three and six months ended June 30, 2002, comprehensive loss totaled $3.3
million and $52.0 million, respectively. During the three and six months ended
June 30, 2001, comprehensive loss totaled $9.3 million and $7.4 million,
respectively.
2. Discontinued Operations
During the first quarter of 2002, the Company, as required, adopted SFAS No.
144. In connection with the adoption of SFAS No. 144, the Company has
reclassified to discontinued operations, for all periods presented, the results
and related charges for the business units that the Company discontinued or sold
pursuant to its 2001 restructuring plan, as described below.
During 2001, the Company's board of directors approved a restructuring plan
("2001 Restructuring Plan") that the Company began to implement in the fourth
quarter of 2001. The primary goal in adopting the 2001 Restructuring Plan was to
better position the Company for long-term and more consistent success by
improving its cost structure and eliminating operations in which the Company
believed potential returns were not adequate to justify the risks of those
operations. Certain markets in which the Company operated,
8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
2. Discontinued Operations (continued)
including Brazil, Jamaica, South Africa, Venezuela and Zimbabwe, had unusually
high risk profiles due to many factors, including among other things, high
importation duties, currency restrictions and volatile political and economic
climates. The Company determined that the risks of operating in these markets
could no longer be justified given the profitability potential of its operations
in those markets, therefore, these operations were sold or otherwise
discontinued pursuant to the 2001 Restructuring Plan. Additionally, pursuant to
the 2001 Restructuring Plan, the Company completed in January 2002, through
certain of its subsidiaries, the formation of a joint venture with Hong
Kong-based Chinatron Group Holdings Limited ("Chinatron"). Chinatron is involved
in the wireless telecommunications and data industry and, is beneficially owned,
in part, by the managing director of Brightpoint China Limited and by a former
executive of Brightpoint, Inc. In addition, an independent director of
Brightpoint, Inc. is also a director of Chinatron. The Company's Chief Executive
Officer (who is also a director of the Company) and the managing director of
Brightpoint China Limited were founding shareholders of Chinatron. Prior to the
Company entering into the agreement to form the joint venture, the Company's
Chief Executive Officer disposed of his interest in Chinatron primarily through
the sale of his interest to a company owned by the managing director of
Brightpoint China Limited and by a former executive of Brightpoint, Inc. In
exchange, the Company's Chief Executive Officer received the unconditional
promise from their company to pay him $350,000 ($300,000 of which has been paid
to date). In exchange for a 50% interest in Brightpoint China Limited, the
Company received preference shares in Chinatron with a face value of $10
million. On April 29, 2002, the Company announced that it had completed the sale
of its remaining 50% interest in Brightpoint China Limited to Chinatron.
Pursuant to this transaction, the Company received additional preference shares
in Chinatron with a face value of $11 million. In total, the Company now holds
Chinatron preference shares representing a less than 20% interest in Chinatron.
The Company currently estimates that its aggregate amount of Chinatron
preference shares have a fair value of approximately $10 million. The Company
recorded losses related to the sale of Brightpoint China Limited to Chinatron of
approximately $8.5 million during the three months ended March 31, 2002. Upon
adoption of SFAS 142, as discussed below, the Company reclassified these losses
to cumulative effect of a change in accounting principle effective January 1,
2002.
The 2001 Restructuring Plan was also intended to improve the Company's cost
structure and, accordingly, the Company's former North America and Latin America
divisions were consolidated in 2001 and are managed as one division, referred to
as the Americas. Warehouse and logistics functions formerly based in Miami were
transferred to Indianapolis and the warehouse in Miami was closed. Additionally
the Company's operations and activities in Germany, the Netherlands and Belgium,
including regional management, were consolidated into a new facility in Germany.
In total, the 2001 Restructuring Plan will result in a headcount reduction of
approximately 350 employees in most areas of the Company, including marketing,
operations, finance and administration. In addition, the Miami business and its
sales office were closed during the second quarter of 2002. This event is
reflected in discontinued operations and prior periods have been reclassified
accordingly.
For the three and six months ended June 30, 2002 discontinued operations
experienced a net loss of $4.7 million and $6.3 million, respectively, on
revenue of $2.6 million and $15.8 million, respectively, and net gains on
disposal of discontinued operations of approximately $0.9 million and $1.3
million, respectively.
9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
2. Discontinued Operations (continued)
The aggregate losses included $0.7 million and $2.3 million in net losses during
the three and six months ended June 30, 2002, respectively, from wind-up
operations of discontinued entities and $3.1 million and $2.5 million for the
three and six months ended June 30, 2002, respectively, from other adjustments
to amounts recorded pursuant to the 2001 Restructuring Plan. For the three and
six months ended June 30, 2001 the Company's discontinued operations experienced
a net loss of approximately $1.6 million and $1.0 million, respectively, on
revenue of approximately $97 million and $216 million, respectively. To date,
the Company has recorded approximately $39.0 million in charges during 2002 and
2001 relative to the actions called for by the 2001 Restructuring Plan. As of
June 30, 2002 the actions called for by the 2001 Restructuring Plan were
substantially complete, however, the Company expects to continue to record
adjustments through discontinued operations as necessary. Net assets held for
sale or disposal pursuant to the 2001 Restructuring Plan are classified in the
Consolidated Balance Sheet at June 30, 2002, as follows (in millions):
Total current assets $ 4.1
Property and equipment 0.3
Other non-current assets 0.1
----------
Total assets $ 4.5
==========
Accounts payable $ 1.6
Accrued expenses and other liabilities 4.8
----------
Total liabilities $ 6.4
==========
As a result of actions taken in accordance with the 2001 Restructuring Plan, the
Company recorded non-recurring charges totaling approximately $2.5 million
during the six months ended June 30, 2002 and $36.5 million in the fourth
quarter of 2001, respectively, as follows (in millions):
Six Months Ended Three Months Ended
June 30, 2002 December 31, 2001
------------------------ ----------------------------
Non-cash charges:
Impairment of goodwill and investments $ (0.3) $ 12.7
Impairment of accounts receivable and inventories of
restructured operations (0.5) 11.0
Impairment of fixed and other assets 3.0 4.7
Income tax effect of restructuring actions - (12.1)
Write-off of cumulative foreign currency translation
adjustments (1.7) 16.8
------ -------
0.5 33.1
------ -------
Cash charges:
Employee termination costs 0.2 1.7
Lease termination costs 0.7 1.3
Other exit costs 1.1 0.4
------ -------
2.0 3.4
------ -------
$ 2.5 $ 36.5
====== =======
For the three and six months ended June 30, 2002 these charges are classified in
discontinued operations along with the related net operating losses from these
discontinued operations totaling $0.7 million and $2.3 million, respectively. At
June 30, 2002, the Company had approximately $2.6 million in restructuring
reserves related to the 2001 Restructuring Plan.
10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
3. Cumulative Effect of a Change in Accounting Principle
As of January 1, 2002, the Company adopted SFAS No. 142. Pursuant to the
provisions of SFAS 142 the Company stopped amortizing goodwill as of January 1,
2002 and will perform an impairment test on its goodwill at least annually.
During the second quarter of 2002, the Company completed the transitional
impairment test required under SFAS No. 142. The initial step of the impairment
test was to identify potential goodwill impairment by comparing the fair value
of the Company's reporting units to their carrying values including the
applicable goodwill. These fair values were determined by calculating the
discounted free cash flow expected to be generated by each reporting unit taking
into account what the Company considers to be the appropriate industry and
market rate assumptions. If the carrying value exceeded the fair value, then a
second step was performed, which compared the implied fair value of the
applicable reporting unit's goodwill with the carrying amount of that goodwill,
to measure the amount of goodwill impairment, if any. As a result of the initial
transitional impairment test, the Company recorded an impairment charge of
approximately $40.7 million during the first quarter of 2002, which is presented
as a cumulative effect of a change in accounting principle for the six months
ended June 30, 2002.
In addition to performing the required transitional impairment test on the
Company's goodwill, SFAS No. 142 required the Company to reassess the expected
useful lives of existing intangible assets including patents, trademarks and
trade names for which the useful life is determinable. At June 30, 2002, these
intangibles total $1.4 million, net of accumulated amortization of $0.5 million
and are currently being amortized as required by SFAS 142 over three to five
years at approximately $0.4 million per year. The Company incurred no impairment
charges as a result of SFAS No. 142 for intangibles with determinable useful
lives which are subject to amortization.
11
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
3. Cumulative Effect of a Change in Accounting Principle (continued)
The following table shows the Company's 2001 results presented on a comparable
basis to the 2002 results, adjusted to exclude amortization expense related to
goodwill (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
------------- ------------- ------------- -------------
Loss before cumulative effect of a change in accounting
principle and extraordinary gain- as reported $ (12,737) $ (6,866) $ (19,941) $ (4,465)
Goodwill amortization - 658 - 1,297
---------- --------- ---------- ---------
Loss before extraordinary gain and cumulative effect
of a change in accounting principle- as adjusted $ (12,737) $ (6,208) $ (19,941) $ (3,168)
========== ========= ========== =========
Net income (loss)- as reported $ (5,224) $ (6,866) $ (53,176) $ 158
Goodwill amortization - 658 - 1,297
---------- --------- ---------- ---------
Net income (loss)- as adjusted $ (5,224) $ (6,208) $ (53,176) $ 1,455
========== ========= ========== =========
Basic and diluted per share:
Loss before cumulative effect of a change in accounting
principle and extraordinary gain- as reported $ (1.59) $ (0.86) $ (2.50) $ (0.56)
Goodwill amortization - 0.08 - 0.16
---------- --------- ---------- ---------
Loss before extraordinary gain and cumulative effect
of a change in accounting principle- as adjusted $ (1.59) $ (0.78) $ (2.50) $ (0.40)
========== ========= ========== =========
Basic and diluted per share:
Net income (loss) - as reported $ (0.65) $ (0.86) $ (6.66) $ 0.02
Goodwill amortization - 0.08 - 0.16
---------- --------- ---------- ---------
Net income (loss) - as adjusted $ (0.65) $ (0.78) $ (6.66) $ 0.18
========== ========= ========== =========
Weighted average common shares outstanding:
Basic and diluted 7,990 7,972 7,986 7,970
========== ========= ========== =========
The changes in the carrying amount of goodwill by operating segment for the six
months ended June 30, 2002 are as follows (in thousands):
The Americas Europe Asia-Pacific Total
------------------ --------------- ---------------- ----------------
Balance at December 31, 2001 $ 17,259 $ 21,444 $ 21,081 $ 59,784
SFAS No. 142 impairment (17,259) (10,653) (12,836) (40,748)
Divestiture of Brightpoint China Limited - - (8,023) (8,023)
Effects of foreign currency fluctuation and other - 1,266 319 1,585
------------------ --------------- ---------------- ----------------
Balance at June 30, 2002 $ - $ 12,057 $ 541 $ 12,598
================== =============== ================ ================
12
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
4. Extraordinary Gain on Debt Extinguishment
During the second quarter of 2002, the Company repurchased 52,967 of its 250,000
outstanding zero-coupon, subordinated convertible notes due in the year 2018
("Convertible Notes"). The repurchases were made under a plan approved by the
Company's board of directors which allows it to repurchase the remaining
outstanding Convertible Notes. The aggregate purchase price for the Convertible
Notes was approximately $15.2 million (at an average cost of $287 per
Convertible Note) and was funded by working capital. These transactions resulted
in an extraordinary gain, net of tax, of approximately $7.5 million ($0.94 per
diluted share). See Note 7 to the Consolidated Financial Statements for further
discussion.
During the first quarter of 2001, the Company repurchased 36,000 of its
Convertible Notes for approximately $10 million (prices ranging from $278 to
$283 per Convertible Note). These transactions resulted in an extraordinary
gain, net of tax, of approximately $4.6 million ($0.58 per diluted share). These
transactions, along with the purchase of 94,000 Convertible Notes in 2000,
completed the 130,000 Convertible Notes repurchase plan previously approved by
the Company's board of directors.
5. Accounts Receivable Transfers
During the six months ended June 30, 2002 and 2001, the Company entered into
certain transactions with financing organizations with respect to a portion of
its accounts receivable in order to reduce the amount of working capital
required to fund such receivables. These transactions have been treated as sales
pursuant to the provisions of FASB Statement No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No.
140"), which became effective for transactions occurring after March 31, 2001.
Net funds received from the sales of accounts receivable during the six months
ended June 30, 2002 and 2001 totaled $95.0 million and $72.7 million,
respectively. Fees, in the form of discounts, incurred in connection with these
sales totaled $1.1 million and $1.9 million during the six months ended June 30,
2002 and 2001, respectively, and were recorded as losses on the sale of assets
which are included as a component of "Other expenses" in the Consolidated
Statements of Operations. The Company is the collection agent on behalf of the
financing organization for many of these arrangements and has no significant
retained interests or servicing liabilities related to accounts receivable that
it has sold. In limited circumstances, related primarily to payment disputes
regarding the Company's performance in the original transactions, the Company
may be required to repurchase the corresponding accounts receivable sold.
13
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
6. Contract Financing Receivable
The Company offers financing of inventory and receivables to certain network
operator customers and their authorized dealer agents and wireless equipment
manufacturers under contractual arrangements. Under these arrangements, the
Company manages and finances, but does not own, accounts receivable and
inventories for these customers. The amount financed pursuant to these
arrangements is recorded as a current asset under the caption "Contract
financing receivables." In addition, the Company has commitments under certain
contracts to provide inventory financing for these customers pursuant to various
limitations and provisions as defined in the applicable service agreements. At
June 30, 2002 and December 31, 2001, contract financing receivables of $28.7
million and $60.4 million, respectively, were secured by $12.2 million and $23.8
million, respectively, of wireless products located at the Company's facilities.
In addition, at June 30, 2002 and December 31, 2001, the Company had $27.5
million and $45.5 million, respectively, in vendor payables related to purchases
made for these arrangements which it considers to be the unfunded portion of
these receivables.
The Company's contract financing activities are provided to network operators
and their authorized dealer agents and wireless equipment manufacturers located
throughout the United States. Decisions to grant credit under these arrangements
are at the discretion of the Company, are made within guidelines established by
the network operators and wireless equipment manufacturers and are subject to
the Company's normal credit granting and ongoing credit evaluation process.
7. Lines of Credit and Long-term Debt
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 ("Convertible Notes") with
an aggregate face value of $380 million ($1,000 per Convertible Note) and a
yield to maturity of 4.00%. The Convertible Notes are subordinated to all
existing and future senior indebtedness of the Company and all other
liabilities, including trade payables of the Company's subsidiaries. The
Convertible Notes resulted in gross proceeds to the Company of approximately
$172 million (issue price of $452.89 per Convertible Note) and require no
periodic cash payments of interest. The proceeds were used initially to reduce
borrowings under the Company's revolving credit facility and to invest in
highly-liquid, short-term investments pending use in operations.
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company could repurchase up to 130,000
Convertible Notes. The Company repurchased 94,000 Convertible Notes during the
fourth quarter of 2000 and realized an extraordinary gain, net of tax, on the
repurchases of approximately $10.0. During the first quarter of 2001, the
Company repurchased the remaining 36,000 Convertible Notes under the plan for
approximately $10.1 million (prices ranging from $278 to $283 per Convertible
Note). These transactions resulted in an extraordinary gain, net of tax, of
approximately $4.6 million ($0.58 per diluted share).
14
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
7. Lines of Credit and Long-term Debt (continued)
On November 1, 2001, the Company announced that its Board of Directors had
approved another plan under which the Company may repurchase the remaining
250,000 Convertible Notes. During the second quarter of 2002, the Company
repurchased 52,967 of its outstanding Convertible Notes for approximately $15.2
million (at an average purchase price $287 per Convertible Note). These
repurchases were funded by working capital. These transactions resulted in an
extraordinary gain of approximately $7.5 million ($0.94 per diluted share) after
transaction and unamortized debt issuance costs and applicable taxes. Additional
repurchases, if any, may be made in the open market, in privately-negotiated
transactions or otherwise. The timing and amount of repurchases, if any, will
depend on many factors, including but not limited to, the availability of
capital, the prevailing market price of the Convertible Notes and overall market
conditions. No assurance can be given that the Company will repurchase any
additional Convertible Notes under this plan or otherwise. The Company has the
right, subject to certain limitations, to fund the repurchases of the
Convertible Notes from borrowings under its North America revolving credit
facility (discussed below) and from working capital. However, no assurance can
be given that the Company will repurchase any Convertible Notes in such a
manner. As of June 30, 2002, the remaining 197,033 Convertible Notes had an
accreted book value of approximately $106 million or $537 per Convertible Note.
As of August 7, 2002 the Convertible Notes had a fair market value of
approximately $290 per Convertible Note based on the quoted market price.
The $197 million face value of the Convertible Notes is convertible at the
option of the holder any time prior to maturity. These notes are convertible at
the rate of 2.730 shares of common stock per $1,000 face value note, for an
aggregate of 537,900 shares of common stock. The noteholders also may require
the Company to purchase the notes on the fifth, tenth and fifteenth anniversary
date of the issuance of the notes. The five-year anniversary is March 11, 2003.
The Company has the option to pay the purchase price of approximately $109
million for the 197,033 notes in cash or subject to certain requirements and
conditions, common stock or, a combination thereof. If the Company is able and
chooses to utilize common stock to satisfy all or a portion of this potential
obligation, the number of shares issued may be significant and could
significantly dilute the ownership interests of the Company's common
stockholders. The number of shares that would be issued to holders of the
Convertible Notes, if the Company is able and chooses to use only common stock
and no cash to purchase the Convertible Notes, would be the $109 million
accreted value of the Convertible Notes at the five-year anniversary date
divided by the average sales price of the common stock for the five trading day
period prior to the three trading days before the five-year anniversary date.
Because the noteholders have the ability to require the Company to repurchase
the Convertible Notes within less than a year from June 30, 2002, the
Convertible Notes have been classified as a current liability in the
Consolidated Balance Sheets at June 30, 2002. The Company has engaged a
financial advisor to assist in restructuring its debt including evaluating
alternatives relating to the requirement to repurchase the Convertible Notes in
March of 2003.
On October 31, 2001, the Company's primary North American operating
subsidiaries, Brightpoint North America L.P. and Wireless Fulfillment Services,
LLC ("the Borrowers"), entered into a new revolving credit facility, which was
amended on December 21, 2001 ("the Revolver"), with General Electric Capital
Corporation ("GE Capital") to provide capital for its North American operations.
GE Capital acted as agent for a syndicate of banks ("the Lenders").
15
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
7. Lines of Credit and Long-term Debt (continued)
The Revolver replaces the Company's former Bank One multicurrency facility
discussed below, does not prohibit the Company from borrowing additional funds
outside of the United States and expires in October of 2004. The Revolver
provides borrowing availability, subject to borrowing base calculations and
other limitations, of $90 million and bears interest, at the Borrowers' option,
at the prime rate plus 1.25% or LIBOR plus 2.75%, for the first twelve months
and those rates may be periodically adjusted thereafter based on certain
financial measurements. The Revolver is guaranteed by Brightpoint, Inc. and is
secured by all of the Borrowers' assets in North America. The Company also has
pledged the capital stock of certain of its subsidiaries as collateral for the
Revolver. Borrowing availability under the Revolver is based primarily on a
percentage of eligible accounts receivable and inventory. The terms of the
Revolver include negative covenants that, among other things, limit the
Borrowers' ability to sell certain assets and make certain payments, including
but not limited to, dividends, repurchases of common stock, payments to the
Company and other payments outside the normal course of business, as well as
prohibit the Company from amending the terms of the Convertible Notes without
the prior written consent of GE Capital. The provisions of the Revolver are such
that if the Company's unused borrowing availability falls below $20 million, the
Company is then subject to a minimum fixed charge coverage ratio as defined in
the agreement and a requirement to maintain an unused borrowing availability of
$10 million. Any of the following events could cause the Company to be in
default under the Revolver, including but not limited to, (i) the expiration or
termination of the Company's distribution agreement in the United States with
Nokia Inc., (ii) a change in control of the Company, (iii) Standard & Poor's
lowering its issuer rating of Brightpoint, Inc. to lower than "B", (iv) the
availability of borrowings under the Revolver falling below $10 million or (v)
the violation of the fixed charged coverage ratio, if applicable. In the event
of default, the Lenders may (i) terminate all or a portion of the Revolver with
respect to further advances or the incurrence of further letter of credit
obligations, (ii) declare all or any portion of the obligations due and payable
and require any and all of the letter of credit obligations be cash
collateralized, or (iii) exercise any rights and remedies provided to the
Lenders under the loan document or at law or equity. Additionally, the Lenders
may increase the rate of interest applicable to the advances and the letters of
credit to the default rate as defined in the agreement.
Subject to certain restrictions and limitations set forth in the Revolver, the
Company may use certain proceeds under the Revolver to repurchase its
outstanding Convertible Notes. At June 30, 2002, there were no amounts
outstanding under the Revolver. Available funding under the Revolver was
approximately $43.4 million at June 30, 2002. The Company did not meet certain
financial covenant requirements to draw upon the $20 million minimum unused
borrowing availability, therefore, the Company's effective availability at June
30, 2002 was $23.4 million.
During 2001, one of the Company's subsidiaries, Brightpoint (France) SARL,
entered into a short-term line of credit facility with Natexis Banque. The
facility has borrowing availability of up to approximately $6.9 million Euros
($6.9 million U.S. Dollars), is guaranteed by the receivables of one of
Brightpoint (France) SARL's customers and bears interest at EURIBOR plus 2.5%.
At June 30, 2002 and December 31, 2001, the interest rate was approximately 5.9%
and 5.8%, respectively. A two-month notice is required to terminate the
facility. At June 30, 2002 and December 31, 2001, there was $6.9 million and
$6.1 million, respectively, outstanding under this facility.
16
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
7. Lines of Credit and Long-term Debt (continued)
Also, during 2001, another of the Company's subsidiaries, Brightpoint Australia
Pty Ltd, entered into a short-term line of credit facility with Westpac Banking
Corporation. The facility, which is due on demand, has borrowing availability of
up to $10 million Australian Dollars ($5.1 million U.S. Dollars) and bears
interest at Westpac's base overdraft rate plus 1.95%. At December 31, 2001, the
interest rate was approximately 8.9%. The facility is secured by a fixed and
floating charge over all of the assets of Brightpoint Australia Pty Ltd and is
guaranteed by Brightpoint, Inc. At June 30, 2002, no amounts were outstanding
under this facility and at December 31, 2001 there was approximately U.S. $4.2
million outstanding under this facility.
In January 2002, in connection with the agreement made with Chinatron as
discussed in Note 2 to the Consolidated Financial Statements, Brightpoint China
Limited entered into two separate credit facilities which were supported by two
cash-secured letters of credit totaling approximately $10 million. The Company
sold its remaining interests in Brightpoint China Limited in April of 2002 and,
consequently, both of the cash-secured letters of credit supporting these
facilities have been released.
8. Operating Segments
The Company operates in markets worldwide and has three operating segments.
These operating segments represent the Company's three divisions: the Americas,
Asia-Pacific and Europe. These divisions all derive revenues from sales of
wireless handsets, accessory programs and fees from the provision of integrated
logistics services. However, the divisions are managed separately because of the
geographic locations in which they operate.
The Company evaluates the performance of, and allocates resources to, these
segments based on income (loss) from continuing operations including allocated
corporate selling, general and administrative expenses. As discussed in Note 2
to the Consolidated Financial Statements, during the fourth quarter of 2001 the
Company implemented a restructuring plan that provided for selling or otherwise
disposing of certain operations. In January of 2002 the Company adopted SFAS No.
144 which changed the presentation of discontinued operations. See Notes 1 and 2
to the Consolidated Financial Statements for further discussion.
17
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
8. Operating Segments (continued)
A summary of the Company's operations by segment is presented below (in
thousands):
2002 2001
--------------------------------------- ----------------------------------------
REVENUES FROM INCOME (LOSS) REVENUES FROM INCOME (LOSS)
EXTERNAL CUSTOMERS FROM OPERATIONS EXTERNAL CUSTOMERS FROM OPERATIONS
-------------------- ------------------ ------------------ ------------------
THREE MONTHS ENDED
JUNE 30:
The Americas $ 133,865 $ (6,879) $ 187,742 $ (8,143)
Asia-Pacific 145,599 (459) 104,347 2,042
Europe 59,975 (1,571) 63,043 281
--------- --------- --------- ---------
$ 339,439 $ (8,909) $ 355,132 $ (5,820)
========= ========= ========= =========
SIX MONTHS ENDED
JUNE 30:
The Americas $ 280,458 $ (9,304) $ 366,423 $ (6,047)
Asia-Pacific 285,225 627 210,189 4,297
Europe 111,748 (4,587) 124,817 1,071
--------- --------- --------- ---------
$ 677,431 $ (13,264) $ 701,429 $ (679)
========= ========= ========= =========
JUNE 30, DECEMBER 31,
TOTAL SEGMENT ASSETS: 2002 2001
----------- -----------
The Americas (1) (2) $ 254,993 $ 402,030
Asia-Pacific (2) 87,065 98,539
Europe (2) 96,532 108,851
---------- ----------
$ 438,590 $ 609,420
========== ==========
(1) Includes assets of the Company's corporate operations.
(2) Includes assets held for sale or disposal of discontinued operations at
June 30, 2002.
9. Contingencies
The Company and several of its executive officers and directors were named as
defendants in two complaints filed in November and December 2001, in the United
States District Court for the Southern District of Indiana, entitled Weiss v.
Brightpoint, Inc., et. al., Cause No. IP01-1796-C-T/K; and Mueller v.
Brightpoint, Inc., et. al., Cause No. IP01-1922-C-M/S. In February 2002, the
Court consolidated the Weiss and Mueller actions and appointed John Kilcoyne as
lead plaintiff in this action which is now known as In re Brightpoint, Inc.
Securities Litigation. A consolidated amended complaint was filed in April 2002.
The amended complaint, among other things, adds the Company's current
independent auditors as a defendant.
18
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
9. Contingencies (continued)
The action is a purported class action asserted on behalf of all purchasers of
the Company's publicly traded securities between January 29, 1999 and January
31, 2002, alleging violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by the Company and certain of its
officers and directors, as well as the Company's current independent auditors,
and violations of Section 20(a) of the Exchange Act by the individual
defendants.
The amended complaint alleges, among other things, that the Company
intentionally concealed and falsified its financial condition, and issued
financial statements which violated generally accepted accounting principles, in
order that it would not be declared in default of its loan covenants under its
line of credit. The amended complaint also alleges that, due to the false
financial statements, the Company's stock was traded at artificially inflated
prices. Plaintiff seeks compensatory damages, including interest, against all of
the defendants and recovery of their reasonable litigation costs and expenses.
The Company disputes these claims and intends to vigorously defend this matter.
The defendants have filed motions to dismiss the amended complaint.
A complaint was filed on November 23, 2001 against the Company and 87 other
defendants in the United States District Court for the District of Arizona,
entitled Lemelson Medical, Education and Research Foundation LP v. Federal
Express Corporation, et.al., Cause No. CIV01-2287-PHX-PGR. The plaintiff claims
the Company and other defendants have infringed 7 patents alleged to cover bar
code technology. The case seeks unspecified damages, treble damages and
injunctive relief. The Court has ordered the case stayed pending the decision in
a related case in which a number of bar code equipment manufacturers have sought
a declaration that the patents asserted are invalid and unenforceable. The trial
of that related case is currently scheduled to begin in November 2002. The
Company disputes these claims and intends to defend vigorously this matter.
In February 2002, Nora Lee, filed a complaint in the Circuit Court, Marion
County, Indiana, against all of the Company's current directors, its former
corporate controller and its current independent auditors, Ernst & Young LLP,
which action is entitled Nora Lee Derivatively on Behalf of Nominal Defendant
Brightpoint, Inc., vs. Robert J. Laikin, et. al. and Brightpoint, Inc. as a
Nominal Defendant, Cause No. 49C01-0202-CT-000399.
The plaintiff alleges, among other things, that certain of the individual
defendants sold the Company's Common Stock while in possession of material
non-public information regarding the Company, that the individual defendants
violated their fiduciary duties of loyalty, good faith and due care by, among
other things, causing the Company to disseminate misleading and inaccurate
financial information, failing to implement and maintain internal adequate
accounting control systems, wasting corporate assets and exposing the Company to
losses. The plaintiff is seeking to recover unspecified damages from all
defendants, the imposition of a constructive trust for the amounts of profits
received by the individual defendants who sold the Company's common stock and
recovery of reasonable litigation costs and expenses.
The parties have filed a stipulation agreeing to stay all proceedings in this
derivative action pending a decision on the motions to dismiss the amended
complaint in the In re Brightpoint, Inc. Securities Litigation action.
19
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2002
(UNAUDITED)
9. Contingencies (continued)
The Company has responded to requests for information and subpoenas from the
Securities and Exchange Commission ("SEC") in connection with an investigation
including its accounting treatment of a certain contract entered into with an
insurance company. In addition, certain of the Company's officers or employees
have provided testimony to the SEC and the Company believes that the staff of
the SEC will subpoena additional testimony of certain of its officers and
employees.
The outcome of any litigation is uncertain and an unfavorable outcome in the
proceedings set forth above could have a material adverse affect on the Company.
In addition, the Company is from time to time, also involved in certain legal
proceedings in the ordinary course of conducting its business. While the
ultimate liability pursuant to these actions cannot currently be determined, the
Company believes these legal proceedings will not have a material adverse effect
on its financial position.
The Company's Certificate of Incorporation and By-laws provide for it to
indemnify its officers and directors to the extent permitted by law. In
connection therewith the Company has entered into indemnification agreements
with its executive officers and directors. In accordance with the terms of these
agreements the Company intends to reimburse them for their personal legal
expenses arising from certain pending litigation and regulatory matters.
10. Subsequent Event
In August of 2002, the Company announced that it and certain of its subsidiaries
had entered into an agreement to sell all of their respective interests in
Brightpoint Middle East FZE and Brightpoint Jordan Limited to Persequor Limited,
an entity controlled by the Managing Director of the Company's operations in the
Middle East and certain members of his management team. The closing of this
transaction is expected during the third quarter of 2002 and is subject to the
satisfaction or completion of certain conditions, including without limitation,
the cancellation of certain financing arrangements and the receipt of all
necessary third party and regulatory approvals.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
This discussion and analysis should be read in conjunction with the accompanying
consolidated financial statements and related notes. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual
results are likely to differ from those estimates, but we do not believe such
differences will materially affect our financial position or results of
operations. See Note 1 to the consolidated financial statements included in this
report for information regarding our critical accounting policies. On June 26,
2002 our shareholders approved a 1-for-7 reverse split of our common stock. Per
share amounts in this report for all periods presented have been adjusted to
reflect this reverse stock split which was effective on June 27, 2002. Certain
statements made in this report may contain forward-looking statements. For a
description of risks and uncertainties relating to such forward-looking
statements, see Exhibit 99 to this report and our Annual Report on Form 10-K for
the year ended December 31, 2001.
During the second quarter of 2002, we repurchased 52,967 of our 250,000
outstanding zero-coupon, subordinated convertible notes due in the year 2018
("Convertible Notes"). The repurchases were made under a plan approved by our
board of directors which allows us to repurchase the remaining outstanding
Convertible Notes. The aggregate purchase price for the Convertible Notes was
approximately $15.2 million (at an average cost of $287 per Convertible Note)
and was funded by working capital. These transactions resulted in an
extraordinary gain, net of tax, of approximately $7.5 million ($0.94 per diluted
share). After these repurchases, we had 197,033 Convertible Notes outstanding
with an accreted value of $106 million ($537 per Convertible Note) as of June
30, 2002.
During the second quarter of 2002, we completed the goodwill and other
intangible asset impairment testing required by the adoption of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"). Consequently, we recorded in the first quarter of 2002 an
impairment charge totaling $40.7 million relating to this change in accounting
principle. Approximately $8.5 million of this charge related to the sale of
Brightpoint China Limited to Chinatron Group Holdings Limited which was
previously classified in discontinued operations in our March 31, 2002 financial
statements and has now been reclassified to the cumulative effect of an
accounting change as a part of the adoption of SFAS 142.
During the first quarter of 2002, we completed, through certain of our
subsidiaries, the formation of a joint venture with Hong Kong-based Chinatron
Group Holdings Limited ("Chinatron"). In exchange for a 50% interest in
Brightpoint China Limited, we received preference shares in Chinatron with a
face value of $10 million. In April of 2002, we sold our remaining 50% interest
in Brightpoint China Limited to Chinatron in exchange for additional preference
shares in Chinatron with a face value of $11 million. Our preference shares in
Chinatron are convertible into Chinatron ordinary shares representing less than
a 20% interest in Chinatron. We currently estimate that our total investment in
Chinatron preference shares has a fair market value of approximately $10
million.
During the first quarter of 2002 we adopted Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS No. 144"). In connection with the adoption of SFAS No. 144 we have
reclassified to discontinued operations, for all periods presented, the results
of operations and related charges for the business units that we discontinued or
sold pursuant to our 2001 Restructuring Plan, including our former operations in
China which were sold in April of 2002 pursuant to the Chinatron transaction
discussed above. See further discussion below under the heading "Discontinued
Operations."
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue
Revenue by Division (in thousands):
Three Months Ended
------------------------------------------------------------------------- Change from Change from
June 30, Percent June 30, Percent March 31, Percent Q2 2001 to Q1 2002 to
2002 of Total 2001 of Total 2002 of Total Q2 2002 Q2 2002
---------- ---------- -------------- ----------- ------------ ----------- -------------- -------------
The Americas $ 133,865 39% $187,742 53% $146,593 44% (29%) (9%)
Asia-Pacific 145,599 43% 104,347 29% 139,626 41% 40% 4%
Europe 59,975 18% 63,043 18% 51,773 15% (5%) 16%
---------- --- -------- --- -------- --- --- --
Total $ 339,439 100% $355,132 100% $337,992 100% (4%) **
========== === ======== === ======== === === ==
** Less than 1%
Revenue in the quarter ended June 30, 2002, decreased 4% compared to the second
quarter of 2001 and was relatively unchanged from the first quarter of 2002.
Revenue in the Americas division during the second quarter of 2002 declined
compared to both the second quarter of 2001 and the first quarter of 2002 as we
experienced lower demand for our products and services due primarily to lower
demand in the dealer/agent and retail channels, as well as the exit from the
wireless business by a predominantly fixed line network operator. The revenue
declines in the Americas and Europe divisions, in the second quarter of 2002 as
compared to the second quarter of 2001, were partially offset by an increase in
revenue in the Company's Asia-Pacific division. The increase in revenues during
the second quarter of 2002 for the Europe division when compared to the first
quarter of 2002 was primarily the result of increased revenue in local currency
in Sweden and France and by the effects of the general strengthening of European
currencies against the U.S. Dollar.
Six Months Ended
---------------------------------------------------
June 30, Percent June 30, Percent
2002 of Total 2001 of Total Change
------------ ---------- -------------- ----------- -----------
The Americas $280,458 41% $366,423 52% (23%)
Asia-Pacific 285,225 42% 210,189 30% 36%
Europe 111,748 17% 124,817 18% (10%)
-------- -------- -------- -------- ------
Total $677,431 100% $701,429 100% (3%)
======== ======== ======== ======== ======
Revenue for the first half of 2002 declined 3% compared to the comparable prior
period due to lower demand for our products and services in our Americas and
Europe divisions resulting from slower growth in new wireless subscribers and
lower demand for replacement handsets. In addition, we continue to experience a
general reduction in handset subsidies and in the number of promotional programs
sponsored by network operators in these divisions. The revenue declines in the
Americas and Europe divisions, in the first half of 2002, were partially offset
by increases in revenue in our Asia-Pacific division, particularly the Middle
East.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenue (continued)
Revenue by Service Line (in thousands):
Three Months Ended
---------------------------------------------------------------------- Change from Change from
June 30, Percent June 30, Percent March 31, Percent Q2 2001 to Q1 2002 to
2002 of Total 2001 of Total 2002 of Total Q2 2002 Q2 2002
----------- ---------- ------------ ---------- ------------ ---------- ---------- ----------
Sales of wireless handsets $275,427 81% $281,671 79% $268,526 80% (2%) 3%
Accessory programs 24,679 7% 36,543 10% 31,225 9% (32%) (21%)
Integrated logistics
services 39,333 12% 36,918 11% 38,241 11% 7% 3%
-------- -------- -------- -------- -------- ------ ------ --------
Total $339,439 100% $355,132 100% $337,992 100% (4%) **
======== ======== ======== ======== ======== ====== ====== ========
** Less than 1%
Compared to the first quarter of 2002, we experienced an increase in revenues
from wireless handset sales in the second quarter of 2002 due to increased
volumes in the Asia-Pacific division and slightly higher average selling prices
in the Europe division. When compared to the second quarter of 2001, revenues
from wireless handset sales decreased due to the factors affecting worldwide
demand for wireless handsets discussed previously. Compared to the first quarter
of 2002 and the second quarter of 2001, we experienced decreased revenue from
accessory programs, particularly in the Americas division. Demand for much of
our accessory programs is generated, directly or indirectly, through promotional
programs sponsored by network operators. Many network operators reduced or
delayed promotional programs during recent quarters, causing our revenues in
this service line to decrease. When compared to the first quarter of 2002 and
the second quarter of 2001, the increase in integrated logistics services
revenues during the second quarter of 2002 reflects the addition of new
significant logistics services customers in certain markets and increased
revenue from our services related to prepaid wireless in Sweden.
Six Months Ended
--------------------------------------------------
June 30, Percent of June 30, Percent
2002 Total 2001 of Total Change
----------- ---------- ------------ --------- -----------
Sales of wireless handsets $543,953 80% $554,551 79% (2%)
Accessory programs 55,904 8% 77,101 11% (27%)
Integrated logistics services 77,574 12% 69,777 10% 11%
-------- -------- -------- -------- --------
Total $677,431 100% $701,429 100% (3%)
======== ======== ======== ======== ========
Revenue from wireless handset sales for the first half of 2002 declined 2%
compared to the comparable prior period due to the lower worldwide demand in
2002 discussed previously. The decrease in accessory program revenues in the
first six months of 2002 when compared to the first six months of 2001 was due
to the reduction in demand created by reduced or delayed promotional programs in
recent quarters by many of our network operator customers. The increase in
integrated logistics services revenues during the first half of 2002 compared to
the first half of 2001 reflects the addition of new significant logistics
services customers in certain markets and increased revenue from our services
related to prepaid wireless in Sweden.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Gross Profit
Three Months Ended Six Months Ended Percent Change
---------------------------------- ----------------------- --------------------------------------------
June 30, June 30, March 31, June 30, June 30, Q2 2001 to Q1 2002 to YTD 2002 to
(In thousands) 2002 2001 2002 2002 2001 Q2 2002 Q2 2002 YTD 2001
-------------------------------------------------------------------------------------------------------------------------------
Gross profit $ 13,957 $ 10,190 $ 17,043 $ 31,000 $ 34,710 37% (18%) (11%)
Gross margin 4.1% 2.9% 5.0% 4.6% 4.9%
-------------------------------------------------------------------------------------------------------------------------------
Gross profit for the second quarter of 2002, increased 37% when compared to the
second quarter of 2001 and decreased 18% when compared to the first quarter of
2002. Gross margin was 4.1% for the second quarter of 2002 compared to gross
margins of 2.9% for the second quarter of 2001 and 5.0% for the first quarter of
2002. The increase in gross margin during the second quarter of 2002 when
compared to the second quarter of 2001 is primarily due to material inventory
write-downs in the second quarter of 2001. The decrease in gross margin during
the second quarter of 2002 when compared to the first quarter of 2002 was
primarily attributable to reduced gross margins in the Americas region. This
division's gross margin was negatively impacted by: i) the recognition of a loss
related to a purchase obligation to an accessory vendor that the Company now
expects it will not meet, ii) a higher mix of lower margin handset sales, iii)
general pricing pressure and iv) inventory write-downs. For the six months ended
June 30, 2002, the decreases in both gross profit and gross margin when compared
to the six months ended June 30, 2001 were the result of lower gross profit and
gross margin in the first half of 2002 in the Americas region discussed
previously and the write-down of certain inventories in Germany and Mexico in
the first quarter of 2002. The magnitude of the decrease in gross margin in the
first half of 2002 as compared to the first half of 2001 is partially offset by
the material inventory write-downs recognized in the second quarter of 2001.
Selling, General and Administrative Expenses
Three Months Ended Six Months Ended Percent Change
---------------------------------- ----------------------- ------------------------------------------
June 30, June 30, March 31, June 30, June 30, Q2 2001 to Q1 2002 to YTD 2002 to
(In thousands) 2002 2001 2002 2002 2001 Q2 2002 Q2 2002 YTD 2001
-------------------------------------------------------------------------------------------------------------------------------
Selling, general and
administrative expenses $22,866 $16,010 $21,398 $44,264 $35,389 43% 7% 25%
As a percent of revenue 6.7% 4.5% 6.3% 6.5% 5.0%
-------------------------------------------------------------------------------------------------------------------------------
When compared to the second quarter of 2001, selling, general and administrative
expenses in the second quarter of 2002 increased approximately $6.9 million and
also increased as a percent of revenue (6.7% versus 4.5%). When compared to the
first quarter of 2002, selling, general and administrative expenses in the
second quarter of 2002 increased approximately $1.5 million and also increased
as a percent of revenue (6.7% versus 6.3%). The increases in selling, general
and administrative expenses include severance costs totaling approximately $1.0
million related to the departure of our former Chief Financial Officer and
approximately $0.5 million related to reductions in force for certain continuing
operations. For the first half of 2002, selling, general and administrative
expenses increased 25% from the comparable prior period. These increases are due
primarily to the one-time severance items discussed above and to increased
corporate and overhead costs, including legal, accounting and other professional
fees.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating Loss from Continuing Operations
Three Months Ended Six Months Ended
----------------------------------- -------------------------
(In thousands) June 30, June 30, March 31, June 30, June 30,
2002 2001 2002 2002 2001
---------------------------------------------------------------------------------------
Operating loss from
continuing operations $ (8,909) $ (5,820) $ (4,355) $ (13,264) $ (679)
As a percent of revenue (2.6%) (1.6%) (1.3%) (2.0%) (0.1%)
---------------------------------------------------------------------------------------
For the second quarter of 2002, we experienced an operating loss from continuing
operations of $8.9 million compared to operating losses from continuing
operations of $5.8 million in the second quarter of 2001 and $4.4 million in the
first quarter of 2002, respectively. The higher operating loss from continuing
operations in the second quarter of 2002 when compared to the first quarter of
2002 was due to the reduction in revenue and corresponding reduction in both
gross profit and gross margin in the Americas division and the overall increase
in selling, general and administrative expenses discussed above. When compared
to the second quarter of 2001, the higher operating loss from continuing
operations in the second quarter of 2002 was the result of higher selling,
general and administrative expenses. The operating loss from continuing
operations for the six months ended June 30, 2002 compared to the same period of
2001 increased due to the reduction in revenue, the decrease in gross margin and
the increase in selling, general and administrative expenses as a percent of
revenue.
Loss from Continuing Operations
Three Months Ended Six Months Ended
----------------------------------- -------------------------
(In thousands) June 30, June 30, March 31, June 30, June 30,
2002 2001 2002 2002 2001
---------------------------------------------------------------------------------------
Loss from continuing
operations $ (8,925) $ (5,253) $ (6,047) $ (14,972) $ (3,417)
As a percent of revenue (2.6%) (1.5%) (1.8%) (2.2%) (0.5%)
---------------------------------------------------------------------------------------
The loss from continuing operations for each period presented was primarily
attributable to the factors discussed above in the analyses of revenue, gross
margin and selling, general and administrative expenses. Loss per diluted share
from continuing operations was $1.11 for the second quarter of 2002 compared to
a loss per diluted share from continuing operations of $0.66 in the second
quarter of 2001 and loss per diluted share from continuing operations of $0.76
in the first quarter of 2002. For the six months ended June 30, 2002 and 2001,
loss per diluted share from continuing operations was $1.88 and $0.43,
respectively.
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Discontinued Operations
During the first quarter of 2002 we adopted Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS No. 144"). In connection with the required adoption of SFAS No.
144 we have reclassified to discontinued operations, for all periods presented,
the results of operations and related charges for the business units (Brazil,
Belgium, Holland, Jamaica, Miami, South Africa, Venezuela and Zimbabwe
locations) that we discontinued or sold pursuant to our 2001 Restructuring Plan.
Additionally, as a result of the transaction with Chinatron discussed above in
the section entitled "Overview and Recent Developments," our former operations
in China, including Hong Kong are also classified as discontinued operations.
See Notes 1 and 2 to the Consolidated Financial Statements for further
discussions regarding the adoption of SFAS No. 144 and our 2001 Restructuring
Plan.
During the second quarter of 2002, aggregate losses in discontinued operations
were approximately $3.8 million compared to $1.6 million in the second quarter
of 2001 and $1.2 million in the first quarter of 2002. The increase in the
losses for both periods is primarily the result of further asset write-downs,
closure costs pursuant to the Company's 2001 restructuring plan and losses
incurred from wind-up operations of discontinued entities. Additionally, to
reduce costs further, the Company closed its Miami sales office in the second
quarter of 2002. This event is reflected in discontinued operations and prior
periods have been reclassified accordingly.
For the three and six months ended June 30, 2002 discontinued operations
experienced a net loss of $4.7 million and $6.3 million, respectively, on
revenue of $2.6 million and $15.8 million, respectively, and net gains on
disposal of discontinued operations of approximately $0.9 million and $1.3
million, respectively. These aggregate losses include $0.7 million and $2.3
million in net losses during the three and six months ended June 30, 2002,
respectively, from wind-up operations of discontinued entities and other
adjustments to amounts recorded pursuant to the 2001 Restructuring Plan totaling
$3.1 million and $2.5 million for the three and six months ended June 30, 2002,
respectively. For the three and six months ended June 30, 2001, our discontinued
operations experienced a net loss of approximately $1.6 million and $1.0
million, respectively, on revenue of approximately $97 million and $216 million,
respectively. To date, we have recorded approximately $39.0 million in charges
during 2002 and 2001 relative to the actions called for by the 2001
Restructuring Plan. As of June 30, 2002 the actions called for by the 2001
Restructuring Plan were substantially complete, however, we expect to continue
to record adjustments through discontinued operations as necessary. In total,
the 2001 Restructuring Plan will result in a headcount reduction of
approximately 350 employees in most of our functional areas, including
marketing, operations, finance and administration.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Cumulative Effect of a Change in Accounting Principle
During the second quarter of 2002, we completed the goodwill and other
intangible asset impairment testing required by the adoption of SFAS 142.
Consequently, we recorded in the first quarter of 2002 an impairment charge
totaling $40.7 million relating to this change in accounting principle.
Approximately $8.5 million of this charge related to the sale of Brightpoint
China Limited to Chinatron Group Holdings Limited which was previously
classified in discontinued operations in the Company's March 31, 2002 financial
statements and has now been reclassified to the cumulative effect of an
accounting change as a part of the adoption of SFAS 142. See Note 3 to the
Consolidated Financial Statements for further discussion.
Extraordinary Gain on Debt Extinguishment
During the second quarter of 2002, we repurchased 52,967 of our 250,000
outstanding Convertible Notes. The repurchases were made under a plan approved
by our board of directors which allows us to repurchase the remaining
outstanding Convertible Notes. The aggregate purchase price for the Convertible
Notes was approximately $15.2 million (at an average cost of $287 per
Convertible Note) and was funded by working capital. These transactions resulted
in an extraordinary gain, net of tax, of approximately $7.5 million ($0.94 per
diluted share). After these repurchases, we had 197,033 Convertible Notes
outstanding with an accreted value of $106 million ($537 per Convertible Note)
as of June 30, 2002.
The timing and amount of any additional repurchases, if any, will depend on many
factors, including but not limited to, the availability of capital, the
prevailing market price of the Convertible Notes and overall market conditions.
No assurance can be given that we will repurchase any additional Convertible
Notes. See the section entitled "Liquidity and Capital Resources" below and Note
7 to the Consolidated Financial Statements for further information regarding the
Convertible Notes.
During the first quarter of 2001, we repurchased 36,000 of our then outstanding
Convertible Notes for approximately $10 million (prices ranging from $278 to
$283 per Convertible Note). These transactions resulted in an extraordinary
gain, net of tax, of approximately $4.6 million ($0.58 per diluted share).
Net Income (Loss)
As a result of the factors, charges and gains discussed above, our net loss for
the second quarter of 2002 was $5.2 million, or $0.65 per diluted share,
compared to net losses of $6.9 million, or $0.86 per diluted share, in the
second quarter of 2001 and $48.0 million, or $6.01 per diluted share, for the
first quarter of 2002. During the six months ended June 30, 2002, we experienced
a net loss of $53.2 million, or $6.66 per diluted share, compared to net income
of $0.2 million, or $0.02 per diluted share, during the comparable period in
2001. These losses were due to the factors, charges and gains discussed above.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
(In thousands) June 30, 2002 December 31, 2001
----------------------------------------------------------------- ------------------------- ------------------------
Cash and cash equivalents (includes restricted cash) $ 81,077 $ 74,952
Working capital (1) $ 123,061 $ 184,434
Current ratio (1) 1.52 : 1 1.61 : 1
----------------------------------------------------------------- ------------------------- ------------------------
(1) Does not include our Convertible Notes, which were classified as a
current liability at June 30, 2002.
We have historically satisfied our working capital requirements principally
through cash flow from operations, vendor financing, bank borrowings and the
issuance of equity and debt securities. The decrease in working capital at June
30, 2002 compared to December 31, 2001 is comprised primarily of the effect of
decreases in accounts receivable, inventories and funded contract financing
activities, partially offset by a decrease in accounts payable. We believe that
cash flow from operations and available bank borrowings will be sufficient to
continue funding our short-term capital requirements. However, repurchases of
Convertible Notes (described below), if any, significant changes in our business
model, significant operating losses or expansion of operations in the future may
require us to seek additional and alternative sources of capital. Consequently,
there can be no assurance that we will be able to obtain any additional funding
on terms acceptable to us or at all.
Net cash provided by operating activities was $40.4 million for the six months
ended June 30, 2002, as compared to $34.0 million in the comparable prior
period. The increase was primarily the result of cash generated through reducing
accounts receivable and inventories during the period offset by a reduction in
earnings and accounts payable. Additionally, as of June 30, 2002, average days
revenue in accounts receivable were approximately 34 days, compared to
approximately 32 days for the second quarter of 2001 and 42 days for the first
quarter of 2002, respectively. During the second quarter of 2002, annualized
inventory turns were 15 times compared to 10 times in the second quarter of 2001
and 11 times in the first quarter of 2002. Average days costs in accounts
payable were 35 days for the second quarter of 2002, compared to 34 days for the
second quarter of 2001 and 43 days for the first quarter of 2002, respectively.
These changes combined to create a decrease in cash conversion cycle days to 23
days in the second quarter of 2002 from 34 days in the second quarter of 2001
and 31 days in the first quarter of 2002. This reduction was the result of our
efforts to reduce accounts receivable and inventory levels during the quarter.
As the fourth quarter, which can be subject to seasonal increases in demand,
approaches, we may experience increased levels in accounts receivable and
inventory and therefore a cash conversion cycle of 23 days may not be
sustainable.
Unrestricted cash and cash equivalents at June 30, 2002 increased by
approximately $6.0 million when compared to December 31, 2001 and pledged cash
was relatively unchanged at June 30, 2002 as compared to December 31, 2001. A
significant portion of our cash is held by Brightpoint Holdings B.V., our
primary foreign finance subsidiary, which operates as our European Treasury
Center, and if brought back to the United States could have certain adverse tax
implications.
The reduction in accounts receivable in the first half of 2002 was attributable
to the decreased sales activity, successful acceleration of our accounts
receivable collection cycle and sales or financing transactions of certain
accounts receivable to financing organizations. During 2001 and the first half
of 2002, we entered into certain transactions with financing organizations with
respect to a portion of our accounts receivable in order to reduce the amount of
working capital required to fund such receivables.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Certain of these transactions qualify as sales pursuant to current accounting
principles generally accepted in the United States. Net funds received from the
sales of accounts receivable during the first half of 2002 and 2001 totaled
$95.0 million and $72.7 million, respectively. We are the collection agent on
behalf of the financing organization for many of these arrangements. We have no
significant retained interests or servicing liabilities related to accounts
receivable that we have sold. In limited circumstances, related primarily to
payment disputes regarding our performance in the original transactions, we may
be required to repurchase the accounts. The collection of our accounts
receivable and our ability to accelerate our collection cycle through the sale
of accounts receivable is affected by several factors, including, but not
limited to, our credit granting policies, contractual provisions, our customers'
and our overall credit rating as determined by various credit rating agencies,
industry and economic conditions, the ability of the customer to provide
security, collateral or guarantees relative to credit granted by us, the
customer's and our recent operating results, financial position and cash flows
and our ability to obtain credit insurance on amounts that we are owed. Adverse
changes in any of these factors, certain of which may not be wholly in our
control, could create delays in collecting or an inability to collect our
accounts receivable which could have a material adverse effect on our financial
position, cash flows and results of operations.
At June 30, 2002, our allowance for doubtful accounts was $6.5 million compared
to $6.3 million at December 31, 2001, which we believe was adequate for the size
and nature of our receivables at those dates. Bad debt expense as a percent of
revenues was less than 1.0% for the first six months of 2002. However, we have
incurred significant accounts receivable impairments in connection with our 1999
and 2001 restructuring plans because we ceased doing business in certain
markets, significantly reducing our ability to collect the related receivables.
Also, our accounts receivable are concentrated with network operators, agent
dealers and retailers operating in the wireless telecommunications and data
industry and delays in collection or the uncollectibility of accounts receivable
could have an adverse effect on our liquidity and working capital position. We
believe that during 2001 and the first part of 2002 many participants in the
wireless telecommunications and data industry, including certain of our
customers, experienced operating results that were below previous expectations,
were subject to decreases in overall credit ratings and faced higher costs in
obtaining capital. We believe this trend will continue in 2002 and could have an
adverse effect on our financial position and results of operations. In
connection with our on-going business activities, we intend to offer open
account terms to additional customers, which subjects us to further credit
risks, particularly in the event that receivables are concentrated in particular
geographic markets or with particular customers. We seek to minimize losses on
credit sales by closely monitoring our customers' credit worthiness and by
obtaining, where available, credit insurance or security on open account sales
to certain customers.
The decrease in inventories and corresponding increase in average inventory
turns during the first half of 2002 are due primarily to a reduction in our
inventory levels commensurate with the overall lower demand in 2002 which we
expect to continue in certain markets during 2002. Additionally, during the
first and second quarters of 2002, we recorded inventory valuation adjustments
of approximately $4.1 million in Germany, Mexico and North America to adjust
inventories to their estimated net realizable value based on current market
conditions. These valuation adjustments were the result of the over-supply of
product in our distribution channel and the lower-than-anticipated level of
demand experienced in 2002. Significant portions of the impacted inventories
were wireless accessories.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
We offer financing of inventory and receivables to certain network operator
customers and their agents and manufacturer customers under contractual
arrangements. Under these contracts we manage and finance, but do not own,
inventories and receivables for these customers resulting in a contract
financing receivable. Contract financing receivables decreased to $28.7 million
at June 30, 2002 from $60.4 million at December 31, 2001. Contract financing
receivables are partially offset by the $27.5 million and $45.5 million unfunded
portion of these receivables at June 30, 2002 and December 31, 2001,
respectively. The decrease is due to the overall lower demand being experienced
by some of these customers. These receivables were secured at June 30, 2002 and
December 31, 2001 by $12.2 million and $23.8 million, respectively, of wireless
products located at our facilities. In addition, we have commitments under these
contracts to provide inventory financing for these customers pursuant to various
limitations defined in the applicable service agreements.
The reduction in accounts payable at June 30, 2002 when compared to December 31,
2001 is due primarily to the reduced business activity in the first half of
2002, including inventory purchases and the reduction in average days costs in
accounts payable days. We rely on our suppliers to provide trade credit
facilities and favorable payment terms to adequately fund our on-going
operations and product purchases. The payment terms received from our suppliers
is dependent on several factors, including, but not limited to, our payment
history with the supplier, the supplier's credit granting policies, contractual
provisions, our overall credit rating as determined by various credit rating
agencies, our recent operating results, financial position and cash flows and
the supplier's ability to obtain credit insurance on amounts that we owe them.
Adverse changes in any of these factors, certain of which may not be entirely
within our control, could have a material adverse effect on our operations. We
have, from time to time, obtained extended payment terms from certain
significant vendors at the end of each quarter. Consequently, our accounts
payable and cash balances at quarter end may be higher than what is experienced
throughout the quarter.
At June 30, 2002, net property and equipment decreased slightly due primarily to
the effect of the divestiture of Brightpoint China Limited. Capital expenditures
totaled $6.5 million in the first half of 2002 which was commensurate with
depreciation expense of $6.4 incurred during the period.
The decrease in goodwill and other intangibles at June 30, 2002 as compared to
December 31, 2001 is primarily the result of the non-cash impairment of
approximately $40.7 million of goodwill and other intangibles recorded pursuant
to our adoption of SFAS No. 142 effective January 1, 2002 and approximately $8.0
million of goodwill sold pursuant to the Chinatron transaction discussed
previously. See Note 3 to the Consolidated Financial Statements for further
discussion regarding our adoption of SFAS No. 142.
Net cash provided by investing activities for the six months ended June 30, 2002
was $1.9 million compared to net cash used by investing activities of $24.7 in
the same period of 2001. The increase is due primarily to the decrease in our
funded contract financing activities discussed above and a reduction in our
capital expenditures of approximately $9.6 million from $16.1 million for the
six months ended June 30, 2001 to 6.5 million for the six months ended June 30,
2002.
30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On March 11, 1998, we completed the issuance of zero-coupon, subordinated,
convertible notes due in the year 2018 ("Convertible Notes") with an aggregate
face value of $380 million ($1,000 per Convertible Note) and a yield to maturity
of 4.00%. The Convertible Notes are subordinated to all of our existing and
future senior indebtedness and all other liabilities, including trade payables
of our subsidiaries. The Convertible Notes resulted in gross proceeds of
approximately $172 million (issue price of $452.89 per Convertible Note) and
require no periodic cash payments of interest. The proceeds were used initially
to reduce borrowings under our revolving credit facility and to invest in highly
liquid, short-term investments pending use in operations. On October 30, 2000,
we announced that our Board of Directors had approved a plan under which we
could repurchase up to 130,000 Convertible Notes. We repurchased 94,000
Convertible Notes during the fourth quarter of 2000 and realized an
extraordinary gain, net of tax, on the repurchases of approximately$10.0 million
During the first quarter of 2001, we repurchased 36,000 Convertible Notes for
approximately $10.1 million (prices ranging from $278 to $283 per Convertible
Note), resulting in an extraordinary gain, net of tax, of approximately $4.6
million ($0.58 per diluted share). As of March 31, 2001, our plan to repurchase
130,000 Convertible Notes was completed.
On November 1, 2001, we announced that our Board of Directors had approved
another plan under which we may repurchase the remaining 250,000 Convertible
Notes. During the second quarter of 2002, we repurchased 52,967 of the 250,000
outstanding Convertible Notes. The aggregate purchase price for the Convertible
Notes was approximately $15.2 million (at an average cost of $287 per
Convertible Note) and was funded by working capital. These transactions resulted
in an extraordinary gain, net of tax, of approximately $7.5 million ($0.94 per
diluted share). After these repurchases, we had 197,033 Convertible Notes
outstanding with an accreted value of $106 million ($537 per Convertible Note)
as of June 30, 2002. As of August 7, 2002 the Convertible Notes had an estimated
fair market value of approximately $290 per Convertible Note based on the quoted
market price. Further repurchases, if any, may be made in the open market, in
privately-negotiated transactions or otherwise. The timing and amount of
repurchases, if any, will depend on many factors, including but not limited to,
the availability of capital, the prevailing market price of the Convertible
Notes and overall market conditions. We have the right, subject to certain
limitations, to fund the repurchases of the Convertible Notes from borrowings
under our North America revolving credit facility (discussed below) and from
working capital. However, no assurance can be given that we will repurchase any
Convertible Notes.
The $197 million face value of the Convertible Notes is convertible at the
option of the holder any time prior to maturity. These notes are convertible at
the rate of 2.730 shares of common stock per $1,000 face value note, for an
aggregate of 537,900 shares of common stock. The noteholders also may require us
to purchase the Convertible Notes on the fifth, tenth and fifteenth anniversary
date of their issuance. The five-year anniversary is March 11, 2003. We have the
option to pay the purchase price of approximately $109 million for the 197,033
notes in cash or subject to certain requirements and conditions, common stock or
a combination thereof. If we are able and choose to utilize common stock to
satisfy all or a portion of this potential obligation, the number of shares
issued may be significant and could significantly dilute the ownership interests
of our common stockholders. The number of shares that would be issued to holders
of the Convertible Notes, if we are able and choose to use only common stock and
no cash to purchase the notes, would be the $109 million accreted value of the
Convertible Notes at the five-year anniversary date divided by the average sales
price of the common stock for the five trading day period prior to the three
trading days before the five-year anniversary date.
31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Because the noteholders have the ability to require us to repurchase the
Convertible Notes within less than a year from June 30, 2002, the Convertible
Notes have been classified as a current liability in the Consolidated Balance
Sheets at June 30, 2002. We have engaged a financial advisor to assist us in
restructuring our debt including exploring alternatives relating to the
requirement to repurchase the Convertible Notes in March of 2003.
On October 31, 2001, our primary North American operating subsidiaries,
Brightpoint North America L.P. and Wireless Fulfillment Services, LLC ("the
Borrowers"), entered into a new revolving credit facility, which was amended on
December 31, 2001 ("the Revolver"), with General Electric Capital Corporation
("GE Capital") to provide capital for our North American operations. GE Capital
acted as agent for a syndicate of banks ("the Lenders"). The Revolver replaces
our former Bank One multicurrency facility discussed below, does not prohibit us
from borrowing additional funds outside of the United States and expires in
October of 2004. The Revolver provides borrowing availability, subject to
borrowing base calculations and other limitations, of $90 million and bears
interest, at the Borrowers' option, at the prime rate plus 1.25% or LIBOR plus
2.75%, for the first twelve months and those rates may be periodically adjusted
thereafter based on certain financial measurements. The Revolver is guaranteed
by Brightpoint, Inc. and is secured by all of the Borrowers' assets in North
America. Borrowing availability under the Revolver is based primarily on a
percentage of eligible accounts receivable and inventory. The terms of the
Revolver include negative covenants that, among other things, limit the
Borrowers' ability to sell certain assets and make certain payments, including
but not limited to, dividends, repurchases of common stock, payments to us and
other payments outside the normal course of business, as well as prohibit us
from amending the terms of the Convertible Notes without the prior written
consent of GE Capital. The provisions of the Revolver are such that if our
unused borrowing availability falls below $20 million, we are then subject to a
minimum fixed charge coverage ratio as defined in the agreement and a
requirement to maintain an unused borrowing availability of $10 million. Any of
the following events could cause us to be in default under the Revolver,
including but not limited to, (i) the expiration or termination of our
distribution agreement in the United States with Nokia Inc., (ii) a change in
control of Brightpoint, Inc., (iii) Standard & Poor's lowering its issuer rating
of Brightpoint, Inc. to lower than "B", (iv) the availability of borrowings
under the Revolver falling below $10 million or (v) the violation of the fixed
charged coverage ratio, if applicable. In the event of default, the Lenders may
(i) terminate all or a portion of the Revolver with respect to further advances
or the incurrence of further letter of credit obligations, (ii) declare all or
any portion of the obligations due and payable and require any and all of the
letter of credit obligations be cash collateralized, or (iii) exercise any
rights and remedies provided to the Lenders under the loan document or at law or
equity. Additionally, the Lenders may increase the rate of interest applicable
to the advances and the letters of credit to the default rate as defined in the
agreement. Subject to certain restrictions, we may use proceeds under the
Revolver to repurchase our outstanding Convertible Notes. At June 30, 2002,
there were no amounts outstanding under the Revolver. Available funding under
the Revolver was approximately $43.4 million at June 30, 2002. We did not meet
certain financial covenant requirements to draw upon the $20 million minimum
unused borrowing availability, therefore, the Company's effective availability
at June 30, 2002 was $23.4 million.
32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During 2001, one of our subsidiaries, Brightpoint (France) SARL, entered into a
short-term line of credit facility with Natexis Banque. The facility has
borrowing availability of up to approximately $6.9 million Euros ($6.9 million
U.S. Dollars), is guaranteed by the receivables of one of Brightpoint (France)
SARL's customers and bears interest at EURIBOR plus 2.5%. At June 30, 2002 and
December 31, 2001, the interest rate on this facility was approximately 5.9% and
5.8%, respectively. A two-month notice is required to terminate the facility. At
June 30, 2002 and December 31, 2001, there was $6.9 million and $6.1 million,
respectively, outstanding under this facility. Also, during 2001, another of our
subsidiaries, Brightpoint Australia Pty Ltd, entered into a short-term line of
credit facility with Westpac Banking Corporation. The facility, which is due on
demand, has borrowing availability of up to $10 million Australian Dollars ($5.6
million U.S. Dollars) and bears interest at Westpac's base overdraft rate plus
1.95%. At December 31, 2001, the interest rate was approximately 8.9%. The
facility is secured by a fixed and floating charge over all of the assets of
Brightpoint Australia Pty Ltd and is guaranteed by Brightpoint, Inc. At June 30,
2002 no amounts were outstanding under this facility and at December 31, 2001,
there was approximately U.S. $4.2 million outstanding under this facility.
In January 2002, in connection with the agreement made with Chinatron as
discussed in Note 2 to the Consolidated Financial Statements, Brightpoint China
Limited entered into two separate credit facilities which were supported by two
cash-secured letters of credit totaling approximately $10 million. The Company
sold its remaining interests in Brightpoint China Limited in April of 2002 and,
consequently, both of the cash-secured letters of credit supporting these
facilities have been released.
Net cash used by financing activities during the six months ended June 30, 2002
decreased when compared to same period in 2001 due to lower repayments on our
revolving credit facilities partially offset by a greater amount of cash used to
repurchase Convertible Notes discussed above.
The decrease in stockholders' equity from December 31, 2001 to June 30, 2002 of
$51.9 million resulted primarily from the net loss for the six months ended June
30, 2002 of $53.2 million.
33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April of 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections ("SFAS No. 145"). SFAS No. 145
rescinds both FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt ("FASB Statement No. 4"), and an amendment to that
Statement, FASB Statement No.64 Extinguishments of Debt Made to Satisfy Sinking
Fund Requirements ("FASB Statement No. 64"). FASB Statement No. 4 required that
all gains and losses from the extinguishment of debt be aggregated and, if
material, be classified as an extraordinary item, net of the related income tax
effect. Upon the adoption of SFAS No. 145, all gains and losses on the
extinguishment of debt for periods presented in the financial statements will be
classified as extraordinary items only if they meet the criteria in APB Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions ("APB No. 30"). The provisions of SFAS No. 145
related to the rescission of FASB Statement No. 4 and FASB Statement No. 64
shall be applied for fiscal years beginning after May 15, 2002. Upon adoption in
January of 2003, we expect that we will be required to classify any gains or
losses on debt extinguishment, if material, as a separate line item before
Income from Continuing Operations for all periods presented. The provisions of
SFAS No. 145 related to the rescission of FASB Statement No. 44, the amendment
of FASB Statement No. 13 and Technical Corrections became effective as of May
15, 2002 and did not have a material impact on us.
In June of 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
No.146"). SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") Issue No,
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 generally requires companies to recognize costs
associated with exit activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan and is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. We are
currently evaluating the effects, if any, that this standard will have on our
results of operations and financial position.
SUBSEQUENT EVENT
In August of 2002, the Company announced that it and certain of its subsidiaries
had entered into an agreement to sell all of their respective interests in
Brightpoint Middle East FZE and Brightpoint Jordan Limited to Persequor Limited,
an entity controlled by the Managing Director of the Company's operations in the
Middle East and certain members of his management team. The closing of this
transaction is expected during the third quarter of 2002 and is subject to the
satisfaction or completion of certain conditions, including without limitation,
the cancellation of certain financing arrangements and the receipt of all
necessary third party and regulatory approvals.
34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Foreign Currency Exchange Rate Risks
We are exposed to financial market risks, including changes in interest rates
and foreign currency exchange rates. To mitigate interest rate risks, we have
periodically utilized interest rate swaps to convert certain portions of our
variable rate debt to fixed interest rates. To mitigate foreign currency
exchange rate risks, we periodically utilize derivative financial instruments
under the Foreign Currency Risk Management Policy approved by our Board of
Directors. We do not use derivative instruments for speculative or trading
purposes.
We are exposed to changes in interest rates on our variable interest rate
revolving lines of credit. A 10% increase in short-term borrowing rates during
2002 would have resulted in only a nominal increase in interest expense. We did
not have any interest rate swaps outstanding at June 30, 2002.
A substantial portion of our revenue and expenses are transacted in markets
worldwide and are denominated in currencies other than the U.S. Dollar.
Accordingly, our future results could be adversely affected by a variety of
factors, including changes in specific countries' political, economic or
regulatory conditions and trade protection measures.
Our foreign currency risk management program is designed to reduce but not
eliminate unanticipated fluctuations in earnings, cash flows and the value of
foreign investments caused by volatility in currency exchange rates by hedging,
where believed to be cost-effective, significant exposures with foreign currency
exchange contracts, options and foreign currency borrowings. Our hedging
programs reduce, but do not eliminate, the impact of foreign currency exchange
rate movements. An adverse change (defined as a 10% strengthening of the U.S.
Dollar) in all exchange rates would not have had a negative impact on our
results of operations for 2002, due to the aggregate losses experienced in our
foreign operations. At June 30, 2002, there were no cash flow or net investment
hedges open. Our sensitivity analysis of foreign currency exchange rate
movements does not factor in a potential change in volumes or local currency
prices of our products sold or services provided. Actual results may differ
materially from those discussed above.
Equity Price Risks
We have issued zero-coupon, subordinated, convertible notes ("Convertible
Notes"). The Convertible Notes have an accreted value at June 30, 2002 of
approximately $105.8 million (approximately $537 per Convertible Note). The
holders of the Convertible Notes may cause us to repurchase the Convertible
Notes on March 11, 2003, at the accreted value at that date for cash or subject
to certain requirements and conditions, common stock or a combination thereof.
The accreted value at March 11, 2003 will be approximately $552 per Convertible
Note.
If we are able and choose to use common stock to satisfy all of or a portion of
this potential obligation, the number of shares to be issued will be directly
affected by the market price of the common stock on the five trading days prior
to the three trading days before March 11, 2003. The number of shares that would
be issued to satisfy this potential obligation if we are able and choose to
utilize only common stock would be calculated as the total number of Convertible
Notes outstanding (197,033 as of June 30, 2002) multiplied by the accreted value
per Convertible Note at March 11, 2003 (approximately $552 per Convertible Note)
divided by the average sales price of the common stock for the five trading day
period prior to the three trading days before the five year anniversary date. If
common stock is used to satisfy this potential obligation, it could result in
significant dilution to the holders of our common stock.
We have, and may from time to time in the future, repurchase Convertible Notes
depending on many factors including but not limited to, the availability of
capital, the prevailing market price of the Convertible Notes and overall market
conditions, however, no assurance can be given that we will repurchase any
Convertible Notes.
35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and several of its executive officers and directors were named as
defendants in two complaints filed in November and December 2001, in the United
States District Court for the Southern District of Indiana, entitled Weiss v.
Brightpoint, Inc., et. al., Cause No. IP01-1796-C-T/K; and Mueller v.
Brightpoint, Inc., et. al., Cause No. IP01-1922-C-M/S. In February 2002, the
Court consolidated the Weiss and Mueller actions and appointed John Kilcoyne as
lead plaintiff in this action which is now known as In re Brightpoint, Inc.
Securities Litigation. A consolidated amended complaint was filed in April 2002.
The amended complaint, among other things, adds the Company's current
independent auditors as a defendant.
The action is a purported class action asserted on behalf of all purchasers of
the Company's publicly traded securities between January 29, 1999 and January
31, 2002, alleging violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by the Company and certain of its
officers and directors, as well as the Company's current independent auditors,
and violations of Section 20(a) of the Exchange Act by the individual
defendants.
The amended complaint alleges, among other things, that the Company
intentionally concealed and falsified its financial condition, and issued
financial statements which violated generally accepted accounting principles, in
order that it would not be declared in default of its loan covenants under its
line of credit. The amended complaint also alleges that, due to the false
financial statements, the Company's stock was traded at artificially inflated
prices. Plaintiff seeks compensatory damages, including interest, against all of
the defendants and recovery of their reasonable litigation costs and expenses.
The Company disputes these claims and intends to vigorously defend this matter.
The defendants have filed motions to dismiss the amended complaint.
A complaint was filed on November 23, 2001 against the Company and 87 other
defendants in the United States District Court for the District of Arizona,
entitled Lemelson Medical, Education and Research Foundation LP v. Federal
Express Corporation, et.al., Cause No. CIV01-2287-PHX-PGR. The plaintiff claims
the Company and other defendants have infringed 7 patents alleged to cover bar
code technology. The case seeks unspecified damages, treble damages and
injunctive relief. The Court has ordered the case stayed pending the decision in
a related case in which a number of bar code equipment manufacturers have sought
a declaration that the patents asserted are invalid and unenforceable. The trial
of that related case is currently scheduled to begin in November 2002. The
Company disputes these claims and intends to defend vigorously this matter.
In February 2002, Nora Lee, filed a complaint in the Circuit Court, Marion
County, Indiana, against all of the Company's current directors, its former
corporate controller and its current independent auditors, Ernst & Young LLP,
which action is entitled Nora Lee Derivatively on Behalf of Nominal Defendant
Brightpoint, Inc., vs. Robert J. Laikin, et. al. and Brightpoint, Inc. as a
Nominal Defendant, Cause No. 49C01-0202-CT-000399.
The plaintiff alleges, among other things, that certain of the individual
defendants sold the Company's Common Stock while in possession of material
non-public information regarding the Company, that the individual defendants
violated their fiduciary duties of loyalty, good faith and due care by, among
other things, causing the Company to disseminate misleading and inaccurate
financial information, failing to implement and maintain internal adequate
accounting control systems, wasting corporate assets and exposing the Company to
losses. The plaintiff is seeking to recover unspecified damages from all
defendants, the imposition of a constructive trust for the amounts of profits
received by the individual defendants who sold the Company's common stock and
recovery of reasonable litigation costs and expenses.
The parties have filed a stipulation agreeing to stay all proceedings in this
derivative action pending a decision on the motions to dismiss the amended
complaint in the In re Brightpoint, Inc. Securities Litigation action.
36
PART II. OTHER INFORMATION (CONTINUED)
Item 1. Legal Proceedings (continued)
The Company has responded to requests for information and subpoenas from the
Securities and Exchange Commission ("SEC") in connection with an investigation
including its accounting treatment of a certain contract entered into with an
insurance company. In addition, certain of the Company's officers or employees
have provided testimony to the SEC and the Company believes that the staff of
the SEC will subpoena additional testimony of certain of its officers and
employees.
The outcome of any litigation is uncertain and an unfavorable outcome in the
proceedings set forth above could have a material adverse affect on the Company.
In addition, the Company is from time to time, also involved in certain legal
proceedings in the ordinary course of conducting its business. While the
ultimate liability pursuant to these actions cannot currently be determined, the
Company believes these legal proceedings will not have a material adverse effect
on its financial position.
The Company's Certificate of Incorporation and By-laws provide for it to
indemnify its officers and directors to the extent permitted by law. In
connection therewith, the Company has entered into indemnification agreements
with its executive officers and directors. In accordance with the terms of these
agreements the Company intends to reimburse them for their personal legal
expenses arising from certain pending litigation and regulatory matters.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on June 26, 2002, to (a) elect three
(3) Class II directors, (b) amend the Company's Certificate of Incorporation to
effect a reverse split of the Company's issued and outstanding Common Stock, and
(c) ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 2002.
The three (3) Class II directors are to hold office until the Annual Meeting of
Stockholders to be held in 2005 and until their successors have been duly
elected and qualified. The results of the vote to elect the three (3) Class II
directors were as follows:
Robert J. Laikin received 43,049,574 votes for and 0 votes against.
5,657,962 votes were withheld.
Robert F. Wagner received 46,772,345 votes for and 0 votes against.
1,935,191 votes were withheld.
Rollin M. Dick received 46,772,245 votes for and 0 votes against.
1,935,291 votes were withheld.
The results of the vote to amend the Company's Certificate of Incorporation to
effect a reverse split of the Company's issued and outstanding Common Stock were
as follows:
47,044,032 votes for and 1,529,667 votes against. 133,837 votes were
withheld.
The results of the vote to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 2002 were
as follows:
47,916,264 votes for and 662,516 votes against. 128,756 votes were
withheld.
37
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits
(a) Exhibits
The list of exhibits is hereby incorporated by reference to
the Exhibit Index on page 40 of this report.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K for the event
dated June 12, 2002 under Item 5 to report that the Company
repurchased 35,077 of its 250,000 outstanding convertible,
subordinated, zero-coupon Convertible Notes due 2018.
The Company filed a Current Report on Form 8-K for the event
dated April 29, 2002 under Item 5 to report that the Company
received a notice from Nasdaq of the Company's failure to
comply with the U.S. $1.00 minimum bid price requirement for
continued listing on the Nasdaq National Market as set forth
in Nasdaq Marketplace Rule 4450 (a) (5).
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
-----------------
(Registrant)
Date August 14, 2002 /s/ Frank Terence
-------------------------------- --------------------------------------
Frank Terence
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
39
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Amendment dated June 26, 2002 to the Certificate of Incorporation of Brightpoint, Inc.
10.1 Separation and General Release Agreement between the Company and Phillip A. Bounsall
10.2 Escrow Agreement between the Company, Phillip A. Bounsall and Swidler Berlin
Shereff Friedman, LLP
10.3 Employment Agreement between the Company and Frank Terence dated April 22, 2002
10.4 Letter Agreement between the Company and Frank Terence dated April 22, 2002
10.5 Sale and Purchase Agreement between Brightpoint International (Asia Pacific) PTE.
Limited and Chinatron Group Holdings Limited
10.6 Agreement Amending Sale and Purchase Agreement between Brightpoint International
(Asia Pacific) PTE. Limited and Chinatron Group Holdings Limited
10.7 Second Amending Agreement in relation to Sale and Purchase Agreement between
Brightpoint International (Asia Pacific) PTE. Limited and Chinatron Group Holdings
Limited
99.1 Cautionary Statements
99.2 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
99.3 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
40